Set forth below is the text of a comment that I recently posted to another blog entry at this site:
Ok, so like everyone over at Bogleheads, you make allocation decisions based on a number of factors. And yet, you’re “VII” and they’re “get rich quick”. What exactly is the difference between you and them, in practice?
The difference is that I don’t advance death threats or demands for unjustified board bannings or tens of thousands of acts of defamation or threats to get academic researchers fired from their jobs. The difference is that I want to LEARN from the peer-reviewed academic research and the Buy-and-Holders want to BLOCK Learning of what the last 33 years of peer-reviewed academic research says.
That’s the only difference, Anonymous. You are right that the Bogleheads take a number of factors into consideration when setting their allocations and you are right that I do the same. But there is obviously SOMETHING that distinguishes us. That something is the last 33 years of peer-reviewed research. Everything that I say is rooted in Shiller’s “revolutionary” findings of 1981. And Bogle hasn’t changed his investing advice one iota in those 33 years. He is saying the same thing today as he was saying in 1980!
I am saying that we should move out of the Dark Ages of investing analysis and get the word out to every investor alive about what the last 33 years of peer-reviewed research says. There is not one person alive on Planet Earth who doesn’t want to see that happen, including Bogle.
The trouble is that Bogle (and lots and lots of others, to be sure) has committed financial fraud by covering up the findings of the peer-reviewed research for 33 years. So he worries that permitting honest posting at the Bogleheads Forum will land him in a prison cell.
What do you want me to do about that?
I BEGGED the man to come clean before the economic crisis hit. Had he come clean back them, I don’t think he would be going to prison AT ALL. So I did right by him, no?
And I came up with this thing where we attribute his behavior to cognitive dissonance rather than evil intent. I think it would be fair to say that no one else has come up with a better way to get him off the hook for his obstinate behavior. So I CONTINUE to do right by him, no?
What else can I do?
You tell me the difference between us. I considered myself a Buy-and-Holder on the morning of May 13, 2002. It never entered my head that there would be anyone other than Greaney who would consider it a bad thing that I discovered a major error in the Old School retirement studies and corrected it. Would you say that Bogle and the other Buy-and-Holders have been appreciative of my efforts? It sure doesn’t seem that way to me.
There is only one type of poster banned at the Bogleheads Forum — those of us who tell the truth about the last 33 years of peer-reviewed research. Why do you think that is? It cannot possibly just be coincidence that the same type of poster is banned over and over and over and over again.
It is that the Bogleheads CLAIM to believe that investors should be following the peer-reviewed research but have not updated their investing strategy to reflect the research from 1981 forward. That’s the entire problem.
Update your strategy and we are all on the same side. Update your strategy and we can bring the economic criss to an end and enter the greatest period of economic growth in U.S. history. Update your strategy and you will no longer see any need to advance death threats and demands for unjustified board bannings and tens of thousands of acts of defamation and threats to get academic researchers fired from their jobs. Update your strategy and there will no longer be any need for you to tell The Big Buy-and-Hold Lie (that there is some mystical, magical research somewhere showing that it might not be 100 percent necessary for ALL investors to ALWAYS practice price discipline when buying stocks).
This lie is in the process of destroying our country.
Do you care?
I do.
So I am telling.
But that’s it. There are no other differences. The Buy-and-Holders started out doing something wonderful and then they made a perfectly understandable mistake and then they elected to cover it up rather than acknowledge it and now we are seeing the cover-up of a cover-up of a cover-up of a cover-up.
Everything works if you fix Buy-and-Hold to reflect the last 33 years of peer-reviewed research.
If you don’t, you end up in a prison cell. And the rest of us end up in a Second Great Depression.
Is that clear enough? Am I stating things plainly enough for you to get the general idea at long last?
Following the peer-reviewed research is a good idea. But you must be willing to be honest about what the research shows or you turn a good idea into a very, very, very, very BAD idea.
Buy-and-Hold AS IT IS PROMOTED TODAY BY PEOPLE LIKE JACK BOGLE is a very, very, very, very bad idea.
I love Jack and all my other Buy-and-Hold friends. So I naturally want to do everything I can to persuade them to leave this dark, dark path they entered on the morning of May 13, 2002, and get back to where they once belonged.
The difference is lies versus truth. The difference is darkness versus light. The difference is Get Rich Quick versus research-based. The difference is short-term versus long-term. The difference is hate versus love.
Do you see?
Rob
Anonymous says
Uh oh, Rob. Take a look at this:
http://www.wsj.com/articles/how-to-think-about-risk-in-retirement-1417408070?tesla=y&mod=WSJ_PersonalFinance_Taxes&mg=reno64-wsj&url=http://online.wsj.com/article/SB11186790908283423711204580258532832629458.html?mod=WSJ_PersonalFinance_Taxes
Bill, Wade and Michael are showing RESEARCH that adjusts stock allocation on age and not valuation. You better get over there and set them straight.
Here is some peer-reviewed research for you and it doesn’t align with your VII.
Whatchagonnadoaboutit??????
Rob says
I don’t know where you come up with the idea that this article doesn’t align with Valuation-Informed Indexing, Anonymous, It aligns very well although it certainly does not present the full picture and is misleading (I presume inadvertently — but still…) to the extent that it fails to do so. John Walter Russell and I often discussed the points being made in this article. They are important points and they need to be made more forcefully and more frequently.
I love this paragraph:
“The reverse-glide-path approach, then, works because it starts out with a large, ultrasafe liability-matching portfolio and a small risk portfolio. As the retiree ages, the LMP gets spent down and the RP gets larger.”
I am not too crazy about this one:
“There’s nothing special or new about this; it’s simply a variant of the long-established “two-bucket” approach that separates, with mental accounting, a safe portfolio dedicated to essential living expenses from a risky one aimed at one’s heirs, charities and the odd business-class seat.”
Nothing under the sun is 100 percent new. But setting up a two-bucket approach is a HUGE advance over the conventional advice of the past. This sort of language suggests that this is less of a big deal than it is. I would play it just the opposite way. We all should be celebrating the advances in understanding of retirement planning that we have seen in recent years.
The reason that Bernstein is trying to undersell the advance is that he doesn’t want to hurt the feelings of the Buy-and-Holders. That’s stupid. The goal should be to help INVESTORS. And the full truth is that the Buy-and-Holders deep in their hearts want to make the shift to better-informed strategies in any event. They WANT to see the ball moved forward and they want to be part of the effort to move it forward. So there is an important sense in which they WANT to see how their earlier ideas were flawed.
The people who are getting things right and thereby helping us all should STOP APOLOGIZING for doing so. Or at least that is my sincere take re this terribly important matter.
The core issue in retirement planning is balancing two realities that push the person creating a retirement portfolio in opposite directions. You must have stability because this is the money you need to live in for the rest of your life and you can’t afford to take a significant chance that you will lose it. The obvious way to do that is to go non-stocks since stocks are the most volatile asset class.
HOWEVER, retirements can extend for 30 years or even longer in the case of early retirees. To give up the return edge provided by stocks for that length of time is to take a devastating hit re your total lifetime return. So you can’t just go no stocks or low stocks. How do you balance these two competing considerations? That’s the challenge of effective retirement planning.
The development of the safe-withdrawal-rate concept represented a big step forward in our thinking. Once you identify the SWR, you have the best of both worlds. You have a very high degree of safety because your plan works even in a worst-case scenario. And you are able to go with the highest stock allocation possible given your desire to have that high degree of safety.
The SWR concept is gold. People who denigrate the concept because the Old School studies get the numbers wrong are making a terrible mistake. They are cutting off their noses to spite their faces. It is foolishness. What you want to do is to correct the darn errors so that you have LEGITIMATE and ACCURATE SWR studies.
It makes perfect sense for those close to retirement to lower their stock allocations a bit. All else being equal, an asset class of high volatility is less attractive for those either close to entering the distribution stage or already in the distribution stage. That part of this article makes perfect sense.
The reason why you jump to the conclusion that this article does not align with VII and the reason why the article is in part misleading is that it ignores the valuation effect. Yes, age matters. But valuations matter far more! The valuation effect is by far the dominant effect.
Building two buckets makes perfect sense. That is gold. And the reality is that in many circumstances you only need the safe bucket for the first 10 years of retirement. That’s the danger zone, the time-period when taking a bit hit will cripple your plan’s prospects for surviving 30 years. If you play it safe for those 10 years, you will in all likelihood have built up enough reserves from the portion of your portfolio that is in stocks to be able to diminish the size of the super-safe bucket.
The flaw in the article is that, when you ignore valuations, you get all of the numbers wrong and so you cannot make intelligent choices re any of the various moving parts of the plan. The peer-reviewed research shows that those who retired in 1982 had a safe-withdrawal-rate of 9.0 percent if they went with 80 percent stocks. In contrast, those who retired in 2000 had a safe-withdrawal-rate of 1.6 percent. The difference in those numbers is staggering. Anyone who ignores the difference in those numbers in the crafting of a plan is shooting in the dark. To rule out consideration of valuations is to render the task of crafting a successful retirement plan 20 times harder than it is for those open to using the peer-reviewed research of the past 33 years as a guide.
I am 100 percent in favor of the two-bucket approach. That concept is gold. But to implement the two-bucket approach or any other approach effectively, you have to be willing to look at how the numbers change when you move from a high-valuation environment to a low-valuation environment.
Bernstein is wrong when he suggests that the intellectual advances we have seen in retirement planning in recent years are less than huge. They are positively huge. The reason why he cannot today see what a big deal the recent advances are is that he is not yet open to declaring the core Buy-and-Hold claim that exercising price discipline when buying stocks is 100 percent discredited by the last 33 years of peer-reviewed research in this field. Leave out the most important consideration and you get all the numbers wildly wrong regardless of how many buckets you employ.
We are almost there. We are the luckiest generation of investors ever to walk Planet Earth.This article makes important points that all investors need to know about.
And of course Bill and Wade and Michael all would very, very much LOVE TO BE ABLE TO OFFER 100 PERCENT HONEST AND ACCURATE RETIREMENT PLANNING ADVICE.
They are not going to do it until Jack Bogle gives that “I Was Wrong” speech, Anonymous. They are not willing to be put through what they have seen many of their peers put through by the Buy-and-Hold Mafia for the horrible, horrible crime of reporting accurately and honestly what the peer-reviewed research of the past 33 years tells us. They need to feel safe before they are going to be willing to help us in the manner in which they very, very much WANT to help and in which we all very, very, very much NEED them to help us.
We’re on the one-yard line.
I believe that we will be able to get the ball in the end zone shortly after the next price crash hits.
Hang in there, Goon man. It gets better. A LOT better.
Thanks much for the link. That’s helpful stuff.
Rob
Anonymous says
Wow.
You often do that.
Good for you.
Anonymous says
Rob,
I see that you have attained the status of a financial expert like Wade, Jack, Bill, Rick, Larry, etc.
Anonymous says
Thanks.
Like it much.
Anonymous says
Look at you!
Anonymous says
You know it.
Anonymous says
It really shows.
Rob says
Enough already, Anonymous!
We get the idea!
The full truth here is that I am a flawed human just like all of my many Buy-and-Hold friends.
If I listen to too much of this flattery stuff, I am liable to get a big head. A simple “Thank you!” every now and again does the job.
My best wishes to you and yours.
Rob
Anonymous says
The flattery is on level.
Rob says
I understand, Anonymous.
But I mean, come on.
Rob